Make Resolution to Diversify as Business Year Begins.

MUTUAL-fund investors needn't look far to find a reason to celebrate September and the business new year.

The last 12 months are over -- a period in which the average U.S. growth-stock fund dropped 31 percent and the average aggressive-growth fund 36 percent, through late August.

Even though most bargain-hunting "value" stock funds, and bond funds as well, posted gains over that stretch, the Bloomberg average of all long-term funds showed a 9.9 percent loss. That's no way to bankroll a cushy retirement.

To round out the picture, yields on money-market funds plunged from above 6 percent to 3.2 percent as the Federal Reserve cut short-term interest rates in a bid to prop up the economy. From the look of things, it will be a long wait before money-fund returns get back to anything like their former levels.

The outlook remains murky as investors return from the beach, the mountains or wherever else they retreated to nurse their wounds. Still, we can hope that the next 12 months won't be as hostile as the last.

"The Federal Reserve has reduced interest rates. Congress has provided meaningful tax cuts. Oil prices have declined, and inventories have been worked down," said L. Roy Papp, whose L. Roy Papp & Associates in Phoenix manages five stock funds. "The one ingredient that we need is patience."

Ups and downs 

So much for all the talk in the 1990s that the markets had slipped the shackles of the business cycle. Now, many investors are back to consoling themselves that the world is always turning after all. What goes down surely must come up again, mustn't it?

"This year's weak earnings are next year's easy comparisons," said Edward Kerschner, chief global strategist at the investment firm UBS Warburg LLC.

You might spot a weak point or two in the things-have-to-get- better argument. With five straight years of 20 percent or better gains in the late 90s, stocks proved they could keep climbing longer than anyone thought possible. Who's to say a slump can't be just as persistent?

By most traditional measures, stocks are anything but cheap. When last I checked, the price-earnings ratio of the Nasdaq Composite Index was a vertiginous 139 to one.

So, gasp! The future is no more certain going into this new business year than it ever was. In spite of that obstacle, investors can honor a hallowed "business new year" tradition and make a couple of resolutions.

Resolution No. 1: "I will diversify my investments and keep them diversified at all times."

In the late 1990s, to follow this precept meant keeping bond funds, value funds or other supposedly outmoded investments in your portfolio while growth stocks were all the rage. Now, it means sticking with some growth funds while value and bonds are all the rage.

One key element of a diversified approach is to rebalance your holdings every so often. In the late 1990s, most people couldn't bring themselves to pull money out of soaring growth funds. Now, it takes an effort of will to put money in.

But that's what the disciplined procedure calls for. "The biggest mistake most investors make is not to rebalance their portfolios," said John Fields, manager of the $1.2 billion Delaware Decatur Equity Income Fund.

Resolution No. 2: "I will invest in stock funds, bond funds or any other type of investment on the basis of my goals, not on some guess about which looks good."

It makes sense for people seeking growth of their savings, and inflation protection, over periods of three to five years or longer to consider stock funds whether stocks look attractive or not at any given moment.

Similarly, it makes sense for people with short-term objectives to avoid stock funds whether stocks look attractive or not at any given moment.

Chet Currier is a columnist with Bloomberg News

Analysts on Buy Side Getting Status Boost

Never let it be said that analysts at Wall Street brokerage firms are of no use to mutual-fund managers.

Why, at this very minute analysts from what is known as the "sell side" of the Street are performing a service of inestimable value for "buy side" stock-fund managers. They are taking the heat for the great bear market.

In quite a few past market slumps, notably the nest-egg-smashers of 1969-70 and 1973-74, managers of stock funds bore the brunt of investors' frustration and disillusionment. For a time in the 70s, suing your mutual fund practically became the national sport.

Not so today. Securities analysts are under the gun instead -- taken to task, among other things, for allegedly compromising their objectivity for the sake of their employers' investment-banking interests.

The lawsuits and regulatory objections focus on matters such as red-hot initial public offerings and analysts' buy recommendations for soaring Internet stocks that later fell out of the sky.

I'll leave it to others to decide whether this is a fair apportion of recriminations.

The whole discussion has the prospective side effect of enhancing the status of "buy side" analysts who work not for brokerages but for fund management firms and other investing institutions.

These analysts, usually neither as famous nor as well-paid as their sell-side counterparts, escape the taint of the current accusations: no investment-banking tie-ins, no commission business to bring in.

Chet Currier